The End of Poverty

This is an optimistic piece — a rarity for sure around this blog. Here I claim that in 15 years or so, extreme poverty which afflicts around one billion people, mainly in the so-called third world, will be eradicated. That problem has plagued mankind since the beginning but the end is in sight.

Technology

Global extreme poverty will be eliminated as a side-effect of technological advances, primarily made by people who probably neither care about poverty nor do they intend to solve that problem. Which is good news for India. India has the largest number of people suffering extreme poverty in the world. Around half of the billion extremely poor people of the world live in India.

There are two kinds of problems. There are hard problems and there are impossible to solve problems. Given time, with advances in knowledge, all hard problems will be solved. Poverty is a hard problem but not an impossible problem since in many parts of the world it has been solved for all practical purposes. The critically important key to eradicating poverty is knowledge.

Knowledge

Knowledge is what economists call a “public good.” Once produced, knowledge can be repeatedly used without diminishing the available stock. It is “non-rival” in consumption. Technology increases monotonically because of the accumulation of knowledge. And technology (which is essentially knowledge of how to do something) developed somewhere gets adopted in the rest of the world with surprising rapidity. It is very cheap to use once developed.

Consider the cell phone, internet and computer technologies that were developed in the Western economies (they are called developed economies partly because they developed technology) but those advances spread to every part of the globe. Just like the computation and communications technologies, it will be people in rich countries who will develop the technology to eliminate poverty in poor countries, albeit not by design nor intent.

That means India’s dire poverty will be solved not by Indians — least of all by the insanely inept, criminally corrupt government of India which is arguably the fountainhead of India’s poverty — but by others. I note in passing that India’s telecommunications problem was created by the government but it was solved using foreign technology.

In the following I conjecture how the end of poverty will happen.

Poverty has been the default condition of humanity. For nearly all of history, everyone — even those who lorded over the masses — was poor by present standards. Being not-poor is a modern condition, hardly more than a century old. Of course people of the past did not know that they were dirt poor. They just accepted their condition as if it were a fact of nature.

Standards evolve. For certain we would be considered poor by future standards, just as we do the people of a century ago. The poor of the past did not have the kind of stuff most of us have and take for granted: the essential basics of life and luxuries such as the technological gadgets and gizmos we have come to depend on.

Stuff requires Knowledge and Energy

In the past, they did not have the stuff we have because they lacked the technology (the knowledge) to make the stuff we can. They knew very little about how to transform the matter they found on or near the surface of the earth into usable stuff, and they had to work hard to eke out a subsistence existence, to have enough to eat to ward off death for a few decades. Life expectancy was less than half of today’s.

We humans make stuff. That requires two ingredients: knowledge and energy. In the primitive state of humanity, there was little knowledge (technology) and all the energy was mainly what muscles could produce. Consequently very little was produced, and everyone was materially poor.

With time, though, the stock of knowledge (technology) grew, as did the amount of energy available to humans with the discovery of new sources of energy. To aid human and animal muscle power, humans discovered how to get energy from wood, water, coal, wind, oil and ultimately nuclear fission. With every advance in knowledge and energy source, labor productivity increased. That means, for the same amount of human labor expended, more could be done.

An example. Using an earth mover, just one person move more earth than a few hundred people can with their bare hands. To make an earth mover, you need to know how to transform material found on or near the surface of the earth into one. It is the product of thousands of discoveries and inventions, made over centuries. That’s accumulated knowledge, or technology. All transformations require energy and know-how. Machines extend the power that humans have but machines need energy to function. Not just that, energy went into making it. Energy is the bottom line.

Energy: the Story of Civilization

The point here is this: you need both knowledge and energy to make stuff. We humans produce more stuff per capita than before because we know much more and consequently have more energy to use. The material progress of human civilization is the story of how humans have learned how to harness new sources of energy.

What qualifies as a new source of energy? The simple criterion is that it has to be a substitute for the other available sources. To be a substitute, it has to be cheaper in some practical sense. Fossil fuels are cheaper than wind and water power, and nuclear fission power is cheaper than fossil fuels, and so on. Fusion power and yet entirely new sources of energy, when the technology is developed, will be cheaper than the rest.

OK, so here’s the bottom line. We are richer than the people of the past because we have more technology and more energy. Both those two factors make us more productive. We can produce more stuff than what we could before. That trend will continue indefinitely into the future, and we will produce more stuff more cheaply. That means cheaper food, clothing, shelter, … more of whatever the lack of which we define as extreme poverty today.

Energy — the Ultimate Resource

The universe is energy. Matter itself is condensed energy, as Einstein’s equation E=mc^2 states. Living organisms require energy: photosynthesis uses solar energy to transform carbon dioxide, water and trace elements into plant matter, which is then used by animals as food, etc etc. If you have control of energy, you have control of the universe.

When energy becomes sufficiently cheap, nearly all of the stuff needed for the basic essentials of life will be produced with very little effort on the part of people. Imagine automated factories making everything, and all that remains is to have a system which distributes the stuff to whoever needs it. In economics terms, the marginal cost of production of that stuff will be close to zero, and therefore the price of it will be close to zero, and therefore everyone regardless of what their economic status is will be able to consume the basics.

The very notion of what constitute “the basics” itself will evolve over time. Running water and indoor plumbing were not basic some decades ago but they are now in the developed countries.

Exponential Growth

Getting back to energy and technology. Technology will grow at an increasingly accelerating pace. Every year greater advances in technology will be made than was made in the previous decade. That’s an order of magnitude — exponential — increase.

I am writing this at home on a computer connected to the internet. I searched for a reference to Clark’s quote with a few mouse clicks. Practically everything that I need to know is available to me through this internet connection at a monthly cost less than the price of a couple of haircuts. I can read, write, watch, and listen to untold millions of others using technology that was mainly developed in the last two decades.

So therefore I would understand if you were to dismiss my claim that poverty will be history in just 15 years or so. Impossible, you’d say. But we both will be around to see what actually happens.

The other day I read that in Germany, the wholesale price of electricity frequently goes below zero. Meaning, the producers actually pay consumers to buy electricity. That is not at all surprising. The price of energy has been monotonically decreasing. That’s the same as saying the cost (and therefore the price) of everything has been monotonically decreasing.

Therefore when the price of energy gets sufficiently close to zero on average, from time to time, the price will drop below zero. That’s happening in the advanced industrialized countries now; it will happen in India in a few years.

Summary

Technology is advancing at an exponential pace. Therefore the cost of energy will continue to drop. Therefore the cost of production of stuff will monotonically decrease, until a point that it will be practically close to zero. Therefore all the basics of life will be available for consumption at zero price. Therefore extreme poverty will be solved. This will happen in about 15 years.

I read your June 2017 post “The machines are coming” (you linked in your comment above.) I agree that “the machines” will provide most, if not all, of the material needs of humanity. The non-material needs will surface and that is all for the good. Thanks.

Here is a question. Technology often grows exponentially. But technology (know how) is about people. You can’t build a microchip unless you have sufficient number of people in your society who know the different aspect of fabricating the chip.

Like a kid who somehow missed attending high-school wont be able to understand college maths, a society that is not sufficiently invested in a particular field is likely to lose any capability in that field faster and faster. For example Indians today cant even repair a phone made in South Korea. South Korea was behind India in every aspect in 1930s.

People themselves are very smart and constantly struggle to get the know how that will pay them well. But given we don’t have free immigration those unfortunate enough to be born in a country like India where government controls everything are likely to lag way behind others.

Given that we have not built good road system might prevent us from using self driving trucks and hence prevent from reaping subsequent benefits. Mr. Nitin Gadkari the sagacious transport minister has already declared that he will not allow Indian companies to research and operate self driving cars as it will lead to unemployment of drivers.

Don’t you think the gap between a poor person in India and a poor person in say USA would only increase ?

I can disagree with nothing that you wrote in your comment above. Technology grows exponentially is trivially true. But your question is a bit of a non sequitur. Yes, the gap between a poor person in India and in the USA would increase. That’s bound to happen given the system that India has in place — a system that not only does not allow but in fact actively prevents people from getting skilled.

The Indian system is rotten. Until it is changed, Indians are going to be followers and adopters of technology developed elsewhere, not innovators and developers of technology themselves. That is not to say that Indians are stupid. They must be natively as intelligent as the world average; Indians constitute a substantial percentage of the world population. With the handicap of being less educated (or skilled) than the world average, however, Indians will fall behind others. Not just that the Indian poor will be poorer than the US poor, but the Indian rich would be poorer than the US rich.

Akshar,
Will you be worried if an Indian poor gets 2x richer but a US poor gets 100x richer? More generally speaking, are you bothered by growing inequality even if nobody is getting poorer in purchasing-parity-terms?
If you are bothered, I would like to know your reasons for the same.

@Atanu: Thanks for the credible arguments about end of extreme poverty in the third world. It will be done because of the wave of change coming in the world due to technological progress and as you mentioned is not going to be done intentionally but as a collateral benefit. We see tens of millions of young people graduating from colleges in latest technologies. There was a time when a degree in engineering was considered special. It is now a commodity.

The cost of energy and goods is coming down. Recently the airline round trip ticket to India from U.S. went for $500. It is less than the price charged in 1970’s. This is only anecdotal evidence but sometimes all you need is that to illustrate a point.

It is mentioned above that in future marginal cost of goods will be zero. I take it zero does not mean free. But still things will be dirt cheap that no body needs to go hungry and essential things are affordable to the weakest in the society.

Technology is forcing some positive decisions on the people. Once we used to look for saviors and Baba’s in religion, various political leaders and -isms to solve societal issues. But the answer may be coming from technology. Something to look forward to.

You wrote, “It is mentioned above that in future marginal cost of goods will be zero. I take it zero does not mean free. But still things will be dirt cheap that no body needs to go hungry and essential things are affordable to the weakest in the society.”

Actually, when the marginal cost of production is zero, the good or service necessarily becomes free. That’s logically necessary. Just to take trivial example, the cost of production of the energy that we receive from the sun is zero. Therefore the incident solar energy is available for us at a precisely zero price. You would never hear of farmer having to pay a “sunlight” bill for his crops that use sunlight to grow. But the farmer must pay a price for the electricity he uses — because electricity has a positive cost of production.

Outstanding article, thank you. I believe else where on the blog, you’ve opined that within a short enough period, we’ll be past the pernicious effects of harmful religious beliefs. How do you see that happening as part of this technological advancement. Would it be a consequence, primarily, of technological smarts with data allowing us to weed out the lunatics. Or do you think antiquated fiction that forms the basis of religions will be thoroughly exposed for what it is. May be we can’t even conceive of how exactly this will unravel, but can be very confident of the result!

I’ve always dreamt of a technological advance that allows us to “look back” in time. Not time travel and altering the course of past events, but the ability to passively “view” past events anywhere as if they were recorded on video. That would put all cock and bull stories and grand delusions in place 🙂

You are right in pointing out that I do believe that the harmful religions will disappear in short order. I am convinced that that will be a consequence of technological advancement. But it would not be because of, as you put it, “technological smarts with data allowing us to weed out the lunatics”.

Briefly, the harmful religions thrive only in regimes of material poverty. Materially prosperous people generally don’t dream of an afterlife in which they would have material riches. Islam was born in a savage age, and as long as humans have to resort to savagery to gain materially, Islam will be around. But once that link is broken, once humans can be materially satisfied without having to resort to violence, Islam will be eradicated like we have eradicated smallpox.

The future of humanity is bright. Let us rejoice the end of misery and the end of Islam

Hard to argue with the idea that technology will reduce cost to near-zero levels. But the rest of it borders on wishful thinking. Especially, the expectation that some system of distribution will magically appear, sounds almost as sanguine as the familiar and now roundly discredited argument advanced by free-market fanatics that free trade is surely beneficial and the matter of how the winners compensate the losers is only a minor wrinkle that we do not need to worry about. Political economy, voice, agency – these things are nowhere in the picture. Does not a system of representation of voice have to precede the appearance of a system of distribution? If the rich have no intrinsic interest in alleviating poverty, how will that first system come into existence?

Sure. First, trade theory, all the way back to Ricardo (1817), predicts that there will be winners and losers. In his example, if England specializes in clothing and Portugal specializes in wine (due to comparative advantage – whether trade is actually driven by comparative advantage is itself in doubt, see Anwar Shaikh’s magnum opus “Capitalism: Competition, Conflict, Crisis”, from 2016, on this), then those that were producing wine in England and those that were producing clothing in Portugal, will lose if there are any, and there is every reason to believe there will be, impediments to labor moving from one industry seamlessly into another. That’s the most basic case. More sophisticated models will show more categories of losers. For instance, in Heckscher-Ohlin trade models, the owners of the resource that is relatively less abundant in a country will hurt from free trade. Thus, in the US, unskilled labor, which is relatively scarce in the US, will lose if the US enters into free trade with the developing world. Turning to empirics, there’s lots of examples, most obviously all of the American workers that lost their jobs when auto manufacturing moved to Mexico after NAFTA and other kinds of manufacturing moved to China after China’s accession to the WTO in 2001. There’s lots and lots of research on this. Just google, or read Dani Rodrik’s recent columns, where he’s been talking about this for at least the last two years.

Indradeep, when reading through for the first time, the same thought occurred to me as a counterpoint: Engineered denial of resources to a citizenry in order to have a stranglehold on political power. A few hapless African countries are the most egregious examples, where there isn’t even the pretense of good intentions. This has been happening throughout the 20th century though, worsening in many countries. India’s rise from the dust heap of 1991 was also fueled by technology advancement rather than economic foresight. The wireless telecom industry is a dramatic example: what were the idiots in government going to do when there was minimal infrastructure dependency on them? Technological advancement is sometimes so dramatic, it makes their levers of control obsolete overnight.

The data that Atanu presents from Gates Notes in the beginning of the his post is irrefutable. In spite of the mediocre progress with political voice and agency within many challenged countries, the data shines a clear light on the causality. The accelerating decline in extreme poverty since the late 1970s coincides with the growth of the computer age. I don’t see the appreciable decline flattening out until the numbers are statistically insignificant.

There is no reply button for your reply to my comment. So I’m replying to my comment but addressing your question.

See, I am a trained economist, so I tend to be very exacting about cause-effect arguments. Not only that, unlike most mainstream economists who regard the economy as if it were a machine-like totality, so that very neat chains of cause and effect may be readily established (pull a lever here, see a result there), I tend to regard the economy as a fundamentally open system, interacting with many other spheres of activity. This is also how the classical political economists like Smith, Ricardo, and Marx, viewed economic reality, and it is my preferred approach. In this approach, there are many interlocking realms and the technological realm is only one of them. There’s biology (physical capacity), politics (institutions), culture (belief systems), etc. etc.

This style of argument where you identify one thing and then attribute to it all the agency, is a kind of fetish born of an engineering mentality. Social reality is not like that. There are no constants, no time-invariant laws as such. Not that it is therefore a “complex system” and therefore lets unleash the forces of mathematics all over again… No. We are talking of a fundamentally open system that is co-evolving with other systems. To identify one of those other systems and fetishize it, and make it a first cause, is at best problematic and at worst improper thinking. Therefore, I think your question is itself wrongly posed. There are many many developments since the 1970s that have collectively “caused” the secular decline in poverty. Technology is but one of them. The important and insightful thing to do is to identify how exactly technological and organizational forms have interacted with other systems to bring about the results that we observe. This requires careful interdisciplinary study. The engineering mentality will not do.

Also, I just want to say that the question I have raised is a very very vexed one. There are no easy answers. Technology is not going to solve the problem of poverty any more than technology is going to solve the problem of climate change.

Thanks, Indradeep, for engaging in the discussion. I regret that I have not yet responded appropriately but I intend to do so shortly.

To all the others, I’d like to disclose that I hold Indradeep in very high regard. I value him as a friend. He knows what he is talking about, being a trained economist (he received his Ph.D. from MIT; he teaches econ.) We do agree on much of substance but there are areas of intellectual disagreement too.

@Vrooh: “The wireless telecom industry is a dramatic example: what were the idiots in government going to do when there was minimal infrastructure dependency on them? Technological advancement is sometimes so dramatic, it makes their levers of control obsolete overnight.”

I can corroborate this with real life experience. There used to be 10 to 20 year waiting time for a landline and no hope of having a telephone in the foreseeable future. This was one little consideration for me to decide emigration. Later on the cell phone technology broke the paradigm and the rest is history.

Technology and automation are going to bring the production costs down. It is going to eradicate extreme poverty in the next 15 years, mainly in the third world. Poverty may still exist. Many readers of this blog may not know personally what is poverty much less extreme poverty. It was stated by Atanu that this will happen not because of any benevolence on the part of the rich and powerful but in spite of it. When there is an abundance of goods and services there will be a trickle down which will have a marked effect on people’s quality of life.

In today’s world, technological advances touch everyone because of technological advances. Another fact that I have observed on this blog is that no one can really anticipate the consequences of those advances, not even those who were the pioneers. Finally, all the products developed are meant to cater to the needs of the rich — not the poor. But the everyone benefits, even the really poor. Cell phone technology was developed not for the footpath vegetable seller in Mumbai but for the high-flying executive. In about 20 years, the bhaji-wali has a phone a million times more powerful and sophisticated than the first generation cell phones.

I stress mobile tech advances but the real action will be advances in energy technology. Once you have cheap energy, you have everything else. That revolution is around the corner. And when that happens, extreme poverty will end. But more about this in a separate post.

@baransam1: I’ve briefly scanned the articles you pointed to. They both make good points. I tend to be conservative, politically as well as socially, so I don’t find inequality abhorrent, because I don’t have a presumption about everyone being born equal etc. etc. The world is fundamentally not a fair place (and that’s not just a statement about economic outcomes) but that’s a very difficult thing to accept for many, including myself. Anyway, I don’t have much to add to what those articles are saying. I don’t disagree with the points made. You may also wish to check out Jordan Peterson’s Youtube videos about Pareto distributions for more in the same vein.